MINING FINANCE / INVESTMENT

Vast majority of mining projects experience steeper cost over-runs

Mining companies need to admit that a 10% cost overrun for mining projects has become an anachronism as more and more projects are coming in way over budget.

Author: Dorothy Kosich Posted: Wednesday , 30 Nov 2011

RENO, NV -

Mining companies which only factor in a 10% cost over-run for mining projects are asking for trouble, warned experts in mining financing Tuesday during a session at the Northwest Mining Association convention in Reno.

Resource Capital Funds' Jasper Bertisen said the "vast majority" of mining projects have been coming in "way over budget" for the past couple of decades. As a result, RCF now automatically factors in an average cost overrun of 25% when it considers the cost of mining projects.

RMB Resources' Alvaro Belevan said the traditional 10% overrun contingency has been insufficient in recent years. Worse yet, the magnitude of mining project cost overruns are greater nowadays, he added.

"Cost over-runs means the economics of your projects has changed, and changed for the worst," Belevan warned.

"Management must set up a Cost Overrun Provision (COP) when project development begins," Belevan advised. "These are readily available funds held in reserve specifically available for cost overruns."

A COP may be funded from equity and/or a Cost Overrun Facility (COF). A COF is most advantageous to emerging producers, single-assets companies, and companies with multiple development assets who wish to limit cross-subsidies, he suggested.

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News Headlines

The price of gold is due for a correction and this could be used as an entry point by investors eager to get exposure to the precious metal, while the dollar is likely to strengthen as there has been too much pessimism about it, famous investor Jim Rogers told CNBC Tuesday.

Gold [ XAU=1712.09 +1.50 (+0.09%) ] hit record after record high this year as investors scared by central banks printing money around the world and by the protracted debt crisis in the euro zone sought refuge in precious metals.

"I own gold and I'm not selling my gold," Rogers said, but pointed out that the price of the commodity has been up for 11 years in a row.

He advised that a drop in price wouldn't be such a bad thing. "Somewhere down the line gold will have a correction. Gold will continue to do what gold does best. Just give it a chance."

If the gold price retreats towards $1,200 per ounce, Rogers said he would get "extremely excited."

"I'd probably get more interested at $1,600. At $1,710 or whatever it is today I'm not buying gold, I'm just watching. And likewise for silver[ XAG=31.85 -0.22 (-0.69%) ] ," he said.

"If I had to buy one today, I would buy silver just because silver is 40 percent below its all time high, gold is 20 percent near its all time high. But I'm not buying any of the four precious metals today."

"I own the dollar, I own some other currencies as well," he said. "A year ago everybody was pessimistic about the dollar, including me…when everybody is on the same side of the boat, you go to the other side of the boat for a while."

Click Here to Watch Part I of Jim Rogers' Interview

But Rogers warned against piling into one currency. "If you have all of your money in anything, be very careful. Some are going to totally disappear."

Rogers said he also owns the Chinese renminbi [ CNY=X6.3769 -0.007 (-0.11%) ]and the Japanese yen [ JPY=X77.78 -0.20 (-0.26%) ] and criticized governments for their ongoing drive to print money and inability to cut debt.

"Governments around the world continue to print money. Paper money everywhere is being debased. If the US dollar turns into confetti, there is no high for the price of gold, because the dollar will become worthless," he warned.

Europe Getting 'Out of Control'

Rogers also said that no solution would be found for the ongoing crisis as long as European powers remained so heavily debt burdened.

"The solution to too much spending and too much debt is not more spending and more debt. Nobody shows debt going down," he said.

"This situation in Europe is getting out of control. It already is out of control in the US. You're going to have to take your pain sometime. If you did it now, you could ring-fence everybody; the system would survive. Right now governments have some credibility left…if you wait a year or two or five, when the market forces you to deal with reality, then the markets and the banks have no credibility."

"I'd rather take the pain now, rather than the markets force us to take the pain. And that could be the end of the system," he said.

Rogers pointed to the Scandinavian banking crisis of the early 1990s, saying that difficult policies enacted at the time to allow some banks to fail went on to save the long-term future of the region.

"It was a horrible two or three years, but since then Scandinavia – especially Sweden - has had a wonderful rise for the last 15 years or so. And Sweden is one of the most stable and solvent countries in the world."

"The world is full of risk right now. I own Scandinavian currencies because they are probably less risky," he said.

Click Here to Watch Part II of Jim Rogers' Interview

Rogers is still optimistic on commodities and said it was understandable that in the wake of major financial derivatives broker MF Global's recent bankruptcy there would be some uncertainty.

"When a huge player goes bankrupt, it has a lot of ramifications. Once this is past, I would suspect that commodities would continue to go higher and that you would continue to see more inflation. I own all commodities; I especially own food and precious metals," he said.

What is Rogers' tip for a high performing asset class over the next three to six months?

"I am wildly bullish on Myanmar, if I could find a way to put all of my money into Myanmar, I probably would. It is at the place where China was in late 1978; they are opening up, they've changed. They've got 60 million people, they are right there between China and India," he explained.

"I cannot think of anything in the world about which I'm more bullish than Myanmar."

… but then again, Chavez may prefer to have the gold closer to home before some court puts its eyes/hands on it, in order to guarantee payment for one of the many suits Chavez's Bolivarian Kleptocracy faces overseas (Exxon, Conoco, etc.)

Gold is higher in most currencies today. Gold is higher due to the dollar coming under pressure and oil prices (WTI) have surged over 3%.

Stock markets are also higher on fresh hopes Europe will unveil yet another set of measures to tackle the deepening contagion in the Eurozone.

Monetary and systemic risks remain and should see gold well supported at the $1,700/oz level. Indeed, gold could have bottomed on options expiry last week – as is often the case.

Western physical buyers continue to accumulate due to currency concerns. While, demand is robust, there is no panic buying or mass "flocking to gold".

Physical buyers of gold in India, the world's biggest consumer of bullion, remain on the sidelines even though traders offered discounts of up to $5 per ounce to global prices, according to Reuters.

Chinese New Year buying should commence soon which will be supportive of prices and make up for the expected decline in Indian demand.

The currency war meme continues as seen in wild scenes of celebration in Caracas on Friday when Venezuelan citizens partied in the streets as their gold reserves were repatriated.

Reuters reports the first shipment of gold bars arrived home in Venezuela on Friday "amid wild celebrations."

Excited crowds lined the roadside waving big Venezuelan flags and chanting "It's returned! It's returned!" as a convoy of soldiers and armored cars carried the gold ingots from Maiquetia airport to the central bank in Caracas.

The President of the central bank, Nelson Merentes traveled into the city at the head of the convoy. He did not say how much gold bullion was brought back in Friday's shipment but said the bullion came from several European countries.

"Our gold is being stored in the vaults," Merentes told the cheering crowds, sporting a baseball cap that read "The Central Bank of Venezuela with the People."

"It has historic value. It has symbolic value. And it has financial value," bank chief Merentes said about the first shipment.

"Each box of gold weighs 500 kilograms and is worth about $30 million," Merentes said before cheering crowds. "We'll bring the rest back little by little."

Merentes is in favor of the move and said, "The country's finances will be backed by autonomous wealth, so we are not subject to pressure from anyone," UPI reported.

"This guarantees that if there are financial problems in the international markets our gold will be safe here at home," Merentes said.

Drums and sirens sounded out across the square as many in the crowd sang "Forward comandante!" in support of the president. Some waved homemade signs that said: "The gold has returned thanks to Chavez!" and "Long live our sovereignty!"

Chavez addressed the nation on local television last week with the Council of Ministers, the Executive Cabinet and representatives of the Venezuelan Central Bank, including bank chief, Nelson Merentes.

Speaking from the Miraflores presidential palace Chavez said the move was giving back the country's, "Body and soul," and went on to say the return of the gold gave Venezuela more independence from what he described as imperialist powers. While brandishing a copy of the constitution he explained that the Central Bank would carry out the repatriation.

Chavez said the central bank would now be independent of foreign powers and subject only to the national constitution.

Chavez announced the repatriation in August as a "sovereign" step that would help protect Venezuela's foreign reserves from economic turmoil in the United States and Europe. Most of Venezuela's gold held abroad is in London.

"They say Chavez is going to take the gold to Miraflores (presidential palace) and is going to give it to Cuba as a gift," the president chuckled on Friday, mocking political rivals who accuse him of planning to sell the ingots to fill his electoral war chest ahead of next year's election.

"The gold is returning to where it was always meant to be: The vaults of the Central Bank of Venezuela."

"It's our gold. It's the economic reserve for our kids. It's growing and its going to keep growing, both gold and economic reserves," said Chavez. "Venezuela is going to become an economic power, not for the bourgeois or capitalism, but for the Venezuelan people."

A central bank report released in August showed that Venezuela held gold reserves with the Bank of England, JPMorgan Chase & Co., Barclays Plc and Standard Chartered Plc among other banks.

Merentes said in August that Venezuela will look to deposit some of its $6.3 billion of cash reserves in emerging-market financial institutions in Russia, China and Brazil.

Like most of those gathered outside the bank, 62-year-old university professor Jose Escalona wholeheartedly agreed.

"There was no reason for it to be in England," he said. "This gold belongs to all Venezuelans," he told Reuters.

A senior government source involved in transporting the bars, which amount to 90% of Venezuela's gold held abroad, has told Reuters they will be shipped in several cargo flights that will be completed before the end of the year.

The total cost of the operation will be no more than $9 million, the source said, without elaborating.

Chavez often accuses previous presidents of selling off Venezuelans' national assets, including by storing most of the country's gold reserves with Western banks in the mid-1980s.

Chavez is worried about Venezuela's foreign reserves being frozen by sanctions.

By repatriating the bullion, he also reduces the risk of any seizure of assets related to arbitration cases, including those linked to the nationalization of multibillion-dollar oil projects run by US multinationals.

Critics have suggested that Mr Chavez is acting out of fears Venezuela's overseas assets could one day be frozen by sanctions, as happened to his friend and ally, the late Libyan leader Col Muammar Gaddafi.

Chavez, the Venezuelan central bank and some of its people clearly understand the value of gold.

This is in marked contrast to the majority of people in the western world who have forgotten gold's 'historic', 'symbolic' & 'financial' value.

With increasing systemic and monetary risk, gold is reasserting itself as money and as an important safe haven monetary asset.

SILVER Silver is trading at $32.03/oz, €23.98/oz and £20.58/oz

PLATINUM GROUP METALS Platinum is trading at $1,551.63/oz, palladium at $590.50/oz and rhodium at $1,575/oz.

November 23, 2011

Interesting note from SocGen's Dr. Michael Haigh and Jesper Dannesboe regarding copper, which is famously seen as a good barometer of economic health.

In their view, Dr. Copper is dead, not so much in that the economy is dead, but rather it's just not that good of a barometer:

Doctor Copper is dead because copper prices will, in our view, not be leading the ongoing slowdown of the global economy. Investors who use the copper price as a leading indicator for the current business cycle downturn are likely to be disappointed as copper is likely to lag other leading indicators. The reason for this is simple: the physical copper market is tight and has tightened further over recent months. The same is true for oil. The physical crude oil market is extremely tight at present, which explains why crude oil prices have been very resilient despite the terrible newsflow coming out of Europe and fears of a global recession.

After snapping a three-week winning streak, gold and silver traders head into what promises to be a slow-trading Thanksgiving week with lowered expectations.

The SPDR GoldTrust (GLD) was most recently off by 1.8% and the iShares Silver Trust (SLV) was down 3.5%. Still, GLD headed into Monday’s session with a year-to-date gain of more than 21% while SLV — despite a rocky three months in which its net asset value had declined by roughly 20% through last week — was ahead 4.8% in 2011.

For those with longer-term plans to tap into growth in the group, these might be interesting times to consider as entry points. Barclays analysts are looking at gold futures possibly sliding to around $1,680 an ounce, some 1% lower.

“We would fade any further weakness against the $1,600 area looking for a move toward the highs,” they added. For silver, Barclays told clients they “would fade any move below $30 in silver against $28 (an ounce), targeting $35.70.”

Gold for December delivery most recently was sinking by $29.80 to $1,696.30 an ounce on the Comex. Meanwhile, December silver was down $1.57 to $30.85 an ounce in New York.

Analysts at BNP Paribas noted Monday that economic conditions in Europe and the U.S. still seemed in a state of “heightened uncertainty” given political gridlock in Washington over deficit cutting efforts and ongoing debt worries in the euro zone. “In the near term, gold should continue to outperform the rest of the precious metals complex,” the bank wrote in a note to clients.

Interestingly, BNP Paribas predicted that if economic fortunes improve and the “risk-on” trade returns, palladium could “take over gold’s position as the best performing precious metal.”

Along those lines, it’s worth noting that the ETFS PHysical Palladium Shares (PALL) was falling by 2.4% at last glance. But on a relatively light day of activity so far in precious metals, PALL’s volume was notably stronger, trading already near its longer-term full-day average.

In the past three months, PALL’s trajectory has followed SLV’s down by more than 20%.

Analysts at Barclays and Johnson Matthey have recently predicted that palladium’s supply and demand dynamic should swing negative — meaning the market will be in a deficit situation — in 2012.

Miners are also falling today. The Market VectorsGold Miners ETF (GDX) was off by 2.8% while the Global X Silver Miners ETF (SIL) was falling by 5.4% on the day.

Jeb Handwerger, editor of Gold Stock Trades, noted today that the Chinese Metal Exchange has made “ominous noises” about raising the margin rate on silver. “It would seem that the bankers consistently choose to handicap silver and gold while favoring dollars and treasuries,” he added.

GDX has again failed to move past resistance on a technical level, setting the ETF up for a possible test of recent lows at around $52 a share, Handwerger warned. It was trading recently around $55.44 a share.

“Silver also reversed at the 50-day moving average which may indicate that late September lows may be tested,” he wrote.

With Germany again talking tough on a potential European Central Bank bailout of troubled sovereign debt markets, gold futures figure to retest their lows while silver stocks “look vulnerable,” wrote Jordan Roy-Byrne, editor of the Gold & Silver Premium Report.

He told clients this morning:

“This is starting to feel similar to 2008-2009. This Euro crisis could force equities and commodities lower thereby creating the cover for China to re-stimulate, the ECB to print $3 trillion … and then the Fed can print (money) since bonds are strong and the U.S. dollar could be going (higher in the short-term).”

But the independent precious metals analyst did point out that fundamentals remain much stronger for gold than in 2008. He sees some technical clouds forming in the near-term but that a “a breakout in 2012 will have excellent underpinnings and catalysts.”

Brazil to invest $2.4 billion in gold production over next 4 years - The Economic Times

RIO DE JANEIRO: Private firms that invest in gold mining in Brazil will allocate about $2.4 billion over the next four years to their activities, the O Globo newspaper reported Sunday, citing official figures.

This volume of investments is three times the earlier forecasts for the period and could be a major factor in doubling the country's production of the precious metal, which currently stands at 62 tonnes per year.

The figure places Brazil in 13th place among gold mining countries, a good bit below the top-ranked countries, which are China (341 tonnes per year), Australia (259 tonnes), the US (240 tonnes) and South Africa (192 tonnes).

The National Department of Mineral Production has just granted 1,270 permits to mining companies to prospect for gold and is analyzing another 1,173 applications of this kind, the newspaper said, adding that the increase in permit requests is like "a new gold race".

Brazil currently has 2,819 legal and active gold mines, according to O Globo, although most of the production is concentrated in just a few mines operated by foreign mining firms.

The largest gold mine in the country is located in Paracatu, a town in the central state of Minas Gerais, and it is run by Canada's Kinross.

Over the past five years production at this mine has tripled to 15 tonnes per year, a feat that has demanded a great technological effort because Paracatu is one of the mines with the lowest purity index of the precious metal, just 0.4 grams of gold per tonne of rock.

Brazil is only operating at 12 percent of its gold production capacity, which could reach 503 tonnes per year if the country's proven reserves are taken into account, O Globo said.

November 17, 2011

Central banks made their largest purchases of gold in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.

The scale of the buying, at 148.4 tonnes on a net basis, was far bigger than previously disclosed, surprising some traders.

The data were published in a quarterly report by the World Gold Council, a lobby group for the gold industry, on Thursday.

The WGC declined to identify of the central banks behind the majority of the buying citing "confidentiality restrictions", saying only that "a slew of new entrants emerged wishing to bolster gold holdings".

Central banks are one of the most important drivers of the gold market but few disclose details about the changes in their bullion reserves.

Central banks became net buyers of gold last year after two decades of heavy selling – a reversal that has helped propel the price of bullion to a high of $1,920.30 a troy ounce, up 600 per cent in a decade.

This year, led by emerging market central banks intent on diversifying their growing foreign exchange reserves, they are set to buy more gold than at any time since the collapse of the Bretton Woods system 40 years ago, the last time the value of the dollar was linked to gold.

The purchase of 148.4 tonnes in July-September is the largest since GFMS, the consultancy which produces the data underlying the WGC reports, began compiling quarterly numbers in 2002. Before then, the last time central banks were net buyers of gold was in 1988 when they bought 180 tonnes.

Marcus Grubb, head of investment at the WGC, said of the buyers: "We believe it's a number of purchasers from different countries."

The majority of the buying took place in September after prices fell sharply from record levels at $1,900 to a low of $1,534.49, he said. It coincided with growing international tensions over the US dollar after a dispute in Washington about raising the US debt ceiling.

However, Mr Grubb said the buyers were probably pursuing longer-term targets: "Central bank buying tends to follow a different heartbeat than pure investment purchases of gold. It's often based on targets set earlier in the year on gold as a proportion of foreign exchange reserves."

He predicted that central bank buying for the full year could be 450 tonnes, implying a further 90 tonnes in the fourth quarter.

GFMS last month said central bank purchases were likely to be in excess of 400 tonnes and could reach 500 tonnes, an upward revision from its forecast in September of 336 tonnes.

Elsewhere, the WGC reported that China overtook India to become the largest consumer of gold jewellery in the third quarter. Chinese jewellery consumption rose 13 per cent from a year earlier to 138.6 tonnes, while buying from India – traditionally the world's top consumer – fell 26 per cent.

The Gold Report: Could you tell us the premise behind your statement at the New Orleans Investment Conference about why so many exploration and mining companies fail?

Brent Cook: Mining is a tough business-a very tough business. So many things can go wrong even if the company did everything right. On the exploration side, probably 95% of the junior companies whose share prices start moving up the discovery curve finish down at the bottom of that chart. Very few actually end up with something of any real economic significance.

The main reason is that exploration is a very inexact science. In geology and exploration, we deal with a limited amount of data at the earth's surface and then use geologic models to try and understand what is happening at depth. So we are doing a lot of guessing and projecting based on a very limited data set. In fact, exploration geology is as much art as science because so much of what a geologist thinks is subjective and based on experience.

So, in the end, that fuzzy science is being applied to test some sort of geochemical or geophysical anomaly near the earth's surface. It could be slightly elevated gold or arsenic in the soil or a magnetic body of rock at depth. You have to bear in mind that an anomaly is really little more than a difference in the background values of something like soil or rock or density or magnetism. Whatever it is, the world is full of anomalies and they are not all deposits. Nature has scattered billions of geochemical anomalies all around the world, so chasing anomalies is just the nature of the game; that's what keeps us all employed in the exploration business. And failure has to be the overwhelming result when you are looking for that rare place in the earth that everything came together to form an economic deposit.

Still, all of that chasing has been very profitable to the Vancouver stock market scene; a lot of money is raised and made chasing anomalies.

TGR: So even for trained geologists like you, geology is an inexact science and you cannot know what you have until you start drilling.

BC: Basically, that's right. Drilling is a scientific tool. That's when you test your hypothesis. You hypothesize that a vein of gold, for instance, formed at 200 meters of depth under the right circumstances. More often than not, you test your thesis, get your data back, reassess the data and adjust your thesis to fit the data. That's another reason it takes so long to actually make a discovery. Putting widely scattered pieces of data together takes time.

TGR: If 95% of what appear to be good geographic anomalies fail the drill test, why does so much money chase the junior mining sector?

BC: Because if you are successful, your stock goes from $0.25 to $2.50, $10, $20. And even without an economic discovery the rewards can be enormous if you know when to get out. As I say, a lot of these stocks start up that price-appreciation curve. At some point, an investor who is well-enough informed and understands the drill results can sell that stock at a profit before the rest of the world realizes that this is a bust. So a lot of money is made on that upcurve.

TGR: That sounds like making money based on hype and not on value.

BC: A lot of hype goes on in this sector for sure, which is facilitated by the inexact nature of the science, but savvy investors really base decisions on interpreting the results as they come in. When the data start indicating that the hypothesis was wrong, they probably decide it is time to start thinking about getting out. To make money, speculators just have to recognize it before the crowd does.

TGR: Few investors really know how to interpret the data and test the thesis, as you say. How can they realistically play in that junior mining game?

BC: My honest answer is to get good advice. Rick Rule, who emceed the mining panel at the conference, runs Global Resource Investments, a brokerage firm that actually employs geologists and mining engineers as brokers. That's one good place to get advice. A good investment newsletter is another; I like mine.

Of course, a good adviser has to interpret the data correctly and say, "Look, the results from this drilling program from this project up in the Yukon aren't looking so good right now. The results are telling me we have less chance of finding something, so it's probably time to sell." Or it could be the opposite: "This is really looking interesting. Let's buy some more."

TGR: In your New Orleans presentation, you advised junior exploration sector investors to know their exit strategy. Can you expand on that in light of what you've just explained?

BC: Always buy a junior with some idea of who will buy it from you and why. My exit strategy ultimately is to invest in juniors that find deposits good enough to interest the majors. In other words, my exit strategy is to sell to someone somewhat smarter than I am-a major that knows its stuff, does its due diligence and decides to buy one of these companies. I also like to get in early on a project with the idea that as the company derisks it with drilling, metallurgy or whatever, the project fits the profile of a fund manager or someone looking for less risk and more quantifiable upside. But I think the exit strategy for most people who get into this game is to sell to someone dumber than they are, hoping the fools come in and pay more for a stock than they did. That works in a raging bull market, but not in this market. In essence, with a sound exit strategy you know 1) what the deposit the company is looking for actually looks like, 2) what it is going to take in both money and exploration to realize the deposit goal and 3) what it might be worth if all goes well-and then sell when it gets to that point.

TGR: So 95% of the time you sell to someone not so smart, and 5% of the time you hit it and sell to someone smarter.

BC: Theoretically, yes, but that assumes you buy all the stocks that start up the discovery curve and that you are right and that there is an infinite supply of dopes. It's such an inexact science, though, that even expert opinions differ. If you get five geologists in this room with me and we start talking about a property, you will hear six different opinions as to what's going on down at depth or who makes the best beer. I'm certainly not right all the time-no one in this business can be. You have to go with your interpretation of the data at hand and stick with it.

TGR: And the 5% that prove out are fabulous. Does some knowledge base allow a geologist to winnow that 95% down so that geologists have a somewhat lower risk than non-geologists?

BC: I think so, although on the whole geologists are dreamers, so keep that in mind. You can, however, improve the odds quickly by not getting into projects that don't really have a chance of significant success. I would say half the junior companies in this industry are chasing prospects that are not worth very much even if they're successful.

TGR: You are also an investor. Do you prefer prospect generators because, in essence, they have multiple projects and thus spread the risk more than explorers? Or does your knowledge as a geologist enable you to pick and choose on a very educated, selective basis?

BC: I think it's both. The prospect generator model is a very intelligent way to go about investing, and I certainly think that any investors in this sector should have at least some portion of their high-risk investment in some carefully selected prospect generators. With the companies I know that follow this model, the people running them recognize the low odds of success and incorporate that into their business approach. You want intelligent people running the company to begin with-as opposed to those who think they will drill a glory hole, hit it the first time, and strike it rich. That is not a realistic approach to the business.

TGR: Could a lay investor infer that a prospect generator's project has a higher percentage of hitting if it is joint ventured with a major that knows this stuff and has probably done a fair amount of analysis?

BC: That's a good point. It's fantastic when a prospect generator is involved with a major. Its in-house experts are doing the due diligence and selecting the properties the company thinks have a chance of making its hurdle and meeting its big company criteria. A prospect generator in those circumstances has access to the big company's geophysical, geological and engineering experts. There is no way small companies can afford that depth of knowledge on their own.

TGR: Where do you think the next really big precious metals discovery will be?

BC: If I could go anywhere in the world regardless of politics, I'd be in Iran, second is probably Afghanistan. After that it's a tough call.

TGR: Would you like to add anything else, Brent?

BC: I'd like people reading this to come to my website and click on the Discovery Process video link to a property tour I did in the Yukon; it's also on youtube. I think it's worth seeing the reality of a property visit and the sorts of things you can't get reading a press release.

TGR: Thanks for fielding our questions today, Brent. And for the link.

Brent Cook brings more than 30 years of experience in more than 60 countries to bear on his reputation as a world-renowned exploration analyst, geologist, consultant and investment adviser. His knowledge spans all areas of the mining business, from the conceptual stage through detailed technical and financial modeling related to mine development and production. His credentials include service as principal mining and exploration analyst to Global Resource Investments, where he provided analysis to retail brokers and two in-house funds. His weekly Exploration Insights newsletter (www.explorationinsights.com) selectively covers junior mining and exploration investment opportunities.

Africa's second-largest gold miner, Ghana, will increase the current corporate tax rate to 35%, from 25% for mining companies, according to the 2012 budget delivered to parliament on Wednesday.

Posted: Thursday , 17 Nov 2011

ACCRA (Reuters) -

Ghana will increase its corporate tax rate for mining companies to 35 percent from 25 percent, and will collect a 10 percent windfall profit tax from miners, according to a text of the 2012 budget delivered to parliament on Wednesday.

The IMF had urged the West African state, Africa's second-largest gold miner, to look at options to increase tax revenues from the sector. (Reporting by Christian Akorlie and Clair MacDougall; Writing by Richard Valdmanis)

November 16, 2011

73 percent higher than the last trading price of Jaguar Mining - Take the money and run!!

China's Shandong Gold bids $1 billion for Jaguar Mining

Sources close to the proposed deal said Wednesday China's Shandong Gold Group has made a $1.0bn offer to acquire Jaguar Mining, one of Brazil's fastest-growing gold producers, and has prepared cash to get the deal done.

The offer from Shandong Gold was $9.3 per share for Jaguar, or 73 percent higher than the last trading price of Jaguar Mining of $5.39 per share in New York.

Shandong Gold will pay in cash, the sources, who requested not to be named, told Reuters.

Taking advantage of a strong yuan, Chinese resources companies have been hunting overseas for the minerals needed to power China's fast-growing economy.

Jaguar Mining is one of Brazil's fastest-growing gold producers, with operations in a prolific greenstone belt in the state of Minas Gerais. Jaguar's main development project is Gurupi, which holds reserves of 2.3 million ounces.

Li Zhongyi, vice general manager of Shandong Gold in charge of international deals, declined to comment. A spokesman for Jaguar was not immediately available for comment.

Reko Diq in Pakistan holds an estimated 5.9 billion tonnes of mineral resources, with an average copper grade of 0.41 percent and an average gold grade of 0.22 grams a tonne.That's 40 mm oz of gold and 24 mm tonnes of copper (!) that are staying put for the time being... Brilliant these Pakistanis, I guess it's because they don't need the investment...?!?

Pakistan says no to Antofagasta/Barrick mining lease application

Government officials in Pakistan's remote Baluchistan province have rejected a mining lease application from Chilean copper producer Antofagasta and Canada's Barrick Gold, raising questions over the future of their Reko Diq copper-gold project.

Posted: Wednesday , 16 Nov 2011

LONDON (Reuters) -
Pakistan's Baluchistan province has rejected a mining lease application from Chilean copper producer Antofagasta and Canada's Barrick Gold, raising questions over the future of their Reko Diq copper-gold project.
The two miners' joint venture, Tethyan Copper, said last month it had filed a "notice of dispute" with the province over Reko Diq, after Baluchistan government officials refused to meet the company's executives or extend a deadline for a response to objections raised over the lease.
The mining lease application, for an area including the Reko Diq deposit, was submitted in February.
"Tethyan strongly believes that the Reko Diq project can contribute significantly to the development of a modern mining industry in Baluchistan and will consider its options for further courses of action," Antofagasta said in a statement on Wednesday.
Reko Diq -- only the second significant project in the mineral-rich region and potentially a source of much needed inward investment for Pakistan -- holds an estimated 5.9 billion tonnes of mineral resources, with an average copper grade of 0.41 percent and an average gold grade of 0.22 grams a tonne.
The joint venture partners spent $200 million in 2006 buying the exploration licence from rival BHP Billiton. Construction has been projected to cost some $3.3 billion, but that is expected to climb given rising costs faced by the mining industry, particularly in remote locations like Baluchistan.
(Reporting by Clara Ferreira-Marques; Editing by David Jones)

November 15, 2011

(Reuters) - Nebraska and TransCanada Corp agreed on Monday to find a new route for the stalled Keystone XL pipeline that would steer clear of environmentally sensitive lands in the state.

Under pressure from green groups, the State Department last week ordered the company to find a new route for the line in a decision that set back the $7 billion, Canada-to-Texas pipeline by more than a year.

The pipeline would deliver 700,000 barrels a day of crude from Alberta's oil sands to Texas refineries. But environmentalists strongly oppose the project, because of the route, concerns about spills and carbon emissions from production of oil sands crude.

In the deal with Nebraska, the state would pay for the new studies to find a route that would avoid the Sandhills region and the Ogallala aquifer, which provides water for millions in the area.

More Gold Mining Stocks are paying dividends - even if they are still quite low...

Get Paid To Play Gold Using Miner Stocks

With money markets and Treasuries yielding next to nothing these days, investors are finding income in new places. One area those investors should consider is gold mining. With gold rising in value, mining companies are reaping record profit margins, yet the stock prices are depressed due to lack of investor interest. A solution for both gold companies and investors may be dividends, specifically gold-linked dividends.

Several top-tier gold producers that are benefiting from higher gold prices have begun to share a portion of their profits with shareholders via a dividend payout. Thirteen of the world’s largest gold producers are expected to pay nearly $2 billion in dividends this year, according to MineFund, making it the largest payment in gold stock history. The Financial Post also reported that miners’ dividend payments are up 75 percent on a year-over-year basis, compared to a 26 percent increase in 2010.

November 11, 2011

Zambia's recently elected government is to double royalties on copper mines, it announced on Friday as it unveiled its 2012 budget, which aims to back its election pledge of distributing more equitably the southern African state's mineral wealth.

Alexander Chikwanda, finance minister, said he proposed to increase the mineral royalty rate to 6 per cent from 3 per cent for base metals, including copper, and from 5 per cent for precious metals.

He also proposed to separate income arising from hedging activities from core mining activities for income tax purposes. Through the two measures, he said he expected to raise 981bn kwacha ($197m).

Zambia's copper production is expected to be about 730,000 tons this year. Industry officials have estimated that production could double to 1.5m tons by 2016, but that would require an investment of about $5bn.

In spite of the country's mineral wealth, which has driven a strong economic performance in recent years, Zambia suffers from widespread poverty, with about 60 per cent of the population living below the poverty line.

The budget envisages an increase in spending from about 21 per cent of gross domestic product this year to 26.5 per cent of GDP, with rises in spending on health and education. It also reduces corporate tax on agriculture from 15 per cent to 10 per cent, in a bid to increase investment.

"It's a pro-poor, pro-growth budget with spending on things that do have an impact at grass roots," said Razia Khan, an analyst at Standard Chartered. "It looks like a fairly significant increase in spending, but Zambia is in a position to afford it and it's not a large adjustment in mining royalties. It's not significantly different to what would have been anticipated by the mining sector."

Frederick Bantubonse, general manager at Zambia's Chamber of Mines, the industry body, said the increase in mining royalties would have a small impact on low-cost producers, but could affect older and deeper mines where the costs of production are higher.

"Each project is different from the other so there are lots of permutations," he said, adding that the effects would also depend on metal prices.

Mr Chikwanda said Zambia would also seek to issue a $500m eurobond to fund infrastructure projects.

"It is very clear the PF (Patriotic Front) government has a very ambitious plan to transform the Zambian economy," he said. "To do so we need to carefully balance the demands of our citizens for lower taxes against the demands for higher spending, especially on poverty-reducing programmes. This means that we must rebalance the burden of taxation."

Last month, Enrique Peña Nieto, the telegenic frontrunner for the presidential candidacy of Mexico’s Institutional Revolutionary Party (PRI), proclaimed that he believed in the modernisation ofPetroleos Mexicanos (Pemex) as a driver of economic growth in the country. On this point, Mexico should consider applying the so-called Petrobras model to Pemex, he argued. This is a roundabout way of saying that Pemex should be partially privatised, as Brazil’sPetroleo Brasileiro (Petrobras) was when it listed on the New York Stock Exchange in 2000.

This may sound uncontroversial to outsiders. Pemex wants to tap Mexico’s potentially abundant offshore hydrocarbon resources (seearticle), but is short of technology, expertise and cash. In October, it announced its biggest quarterly loss since 2008. Attracting overseas money and know-how, as a restructured Petrobras did, could help turn the Mexican group around. Yet in Mexico, the first country to nationalise its energy assets (in 1938), this is the stuff of controversy. An attempt in 2008 by the current president,Felipe Calderón, of theNational Action Party (PAN), to partially privatise Pemex was watered down in the face of stiff resistance from the public and rival political parties—including the PRI.

Mr Peña Nieto’s remarks have therefore caused a stir. While industry experts applaud him, figures on the left denounce his proposal. The PRI itself is divided. Relatively conservative and nationalistic figures are said to be dismayed, although Mr Peña Nieto’s only rival for the party’s presidential candidacy, Manlio Fabio Beltrones, has since declared his support for a more open approach to managing the oil sector.

In Petrobras’s footsteps

Invoking Petrobras appears politically astute. If it follows in Petrobras’s footsteps, Pemex would welcome private and foreign capital but, crucially, the government would keep majority control. Petrobras’s successful overhaul is widely viewed as a blueprint for turning a national oil company into a commercial operation without selling off national assets.

Bringing in outside cash should bring benefits beyond merely injecting of new funds. Greater accountability to shareholders would improve Pemex’s corporate governance. A US listing would bring oversight by the Securities and Exchange Commission and the Mexican equivalent, theComisión Nacional Bancaria y de Valores,tightening controls on the company’s finances.

Such an overhaul promises a change of mindset at Pemex. With privatisation, Brazil allowed Petrobras to run itself as a company rather than as a state enterprise. Suddenly, it was able to make important financial decisions on its own; to invest in not just exploration and production but also innovative research and design; to choose its business partners; and to plan strategically. These changes made it possible for Petrobras to become a world leader in deepwater technology. Furthermore, they spawned a thriving Brazilian oil industry. Services firms, consultants, engineers, and lawyers all blossomed, and in short order Brazil became an oil-exporting nation.

Battles ahead

A similar transformation would be harder to make in Mexico. Constitutional changes are probably necessary. Risk-sharing contracts would be needed, as would a looser Pemex monopoly over the oil and gas sectors. For this, the support of two-thirds of the Mexican Congress would be required. Yet a president attempting such reforms would incur the wrath of not just the left, but also Mexican nationalists and the powerful Pemex union—not to mentionpotentially large swathes of the Mexican public.

Presidential candidates will not be chosen until March 2012 and congressional and presidential election will take place simultaneously, on July 1st 2012. Although Mr Peña Nieto is the overwhelming favourite among the public, the PRI is unlikely to secure a working majority inCongress. Mr Peña Nieto wouldthus need to persuade members from other parties to support a restructuring of Pemex. This would be an extremely difficult task, since the PAN will have little incentive to co-operate with the PRI: there will beno election on the horizon, and the PRI hasin any caseconsistently blocked PAN initiatives since 2000. Even if Mr Peña Nieto won support inCongress, a restructuring of Pemex could require a change to the constitution or at the very least a constitutional reinterpretation.Given the Mexican public’s traditionalantipathyto foreign investment in the oil sector,making such a change is likely to proveunpopular, so would be devilishly hard to accomplish.

Oil production trends may drum up the necessary support for radical measures, though. Output dipped from 3.9m barrels/day (b/d) in 2004 to 2.9m b/dlast year, according to Economist Intelligence Unit estimates (see chart). By 2013, some analysts think that output at the important but ageing Cantarell field will dwindle further, while Ku Maloob Zaap (KMZ), Mexico’s most prodigious field, will also begin to decline. We forecast that production will fall to 2.3m b/d by 2015 and 2.0m b/d by 2020. (Predictions that oil production will stay on a downward path are disputed by Pemex: its CEO, Juan Jose Suarez Coppel, claimed recently that Pemex will be able to boost output to over 3m b/d by 2015.)

At the same time, as home-grown demand for crude rises, Mexico could be in danger of becoming a net oil importer before long. Resulting pressure on both Pemex’s finances and the government's fiscal position—Pemex provides around 40% of federal revenues—could bring public and elite opinion behind fundamental reform of the sector. The argument for Pemex becoming more like Petrobras in order to stem the decline in production would carry more weight. Like Petrobras, Pemex could focus on deepwater exploration: the relatively unknown seabed within Mexican territoriesin the Gulf of Mexico is an exciting prospect. Big finds have been made on the US side close to Mexican waters.

By making an issue of Pemex so early in the campaign, Mr Peña Nieto is giving himself time to gauge the public’s reaction to his ideas—and, if necessary, to backtrack. Shouldhe and the PRI decide to pursue it further, the issue will be one of the most hotly disputed of the election. If Mr Peña Nieto’s proposal clears all these hurdles, a decision to follow the Petrobras model would fundamentally change theface of Mexico’s oil industry. But, given the political impediments to reform, the rejuvenation of Mexico’s oil sector is a less likely scenario than that of our core forecast: continued decline.

GOLD - Buy the rumour - sell the fact

London, 11 November 2011

Sharps Pixley: Gold's edging higher over the last few weeks can be attributed to a host of factors but certainly the rising cost of funding Italy's debt towards the pivotal 7% has had the market in thrall. The 7% has been seen as the level beyond which Italy would be forced to seek support from the ECB and IMF and, to put it frankly it remains, a moot point whether there is sufficient funding to do much for them. In short, gold prices have benefited from what has appeared to be a slow speed train crash in the Eurozone.

Gold prices have gained 15% since bottoming at $1,530 on 26th September as the Italian 10 year bond rates crept higher. In a sense, investors were buying the 'rumour' or expectation that rates would rise through the critical 7% level. When rates finally went through 7% on Wednesday gold perversely fell - a case of selling the fact. This has created a good entry opportunity for investors wishing to enter the market at an attractive level.

Italian rates have subsequently eased and are currently trading at 6.62% on the back of ECB intervention.

The outlook for the remainder of the year remains positive. Trading in December is traditionally quite lacklustre and we would expect gold to simply edge into the mid $1800's before trading activity tails off. Were this to be so, gold will have seen a fullsome 30% rise on the year which is a tad higher than we saw in 2009 and 2010.